Cross-border M&A: A study of two Chinese
cases
Ma Junhua
Project submitted as partial requirement for the conferral of
Master in International Management
Supervisor:
Prof. Alvaro Rosa, ISCTE Business School, Departamento de Gestão
2
Acknowledgements
My deepest gratitude goes first and foremost to Professor Alvaor Rosa, my supervisor, for his constant encouragement and guidance. He has walked me through all the stages of the writing of this dissertation. And Professor Alvaro Rosa gave me lots of inspirations and encouragement. He read every word of every draft, pointing out the mistakes and helping me to clarify my ideas. His broad and profound
knowledge gave me great impression as well as great help. Without his consistent and illuminating instruction, this dissertation could not have reached its present form.
My great gratitude also goes to some of my friends and classmates who have selfless and generously helped me with my dissertation.
3 Table of contents Acknowledgements ... 2 Index of Charts ... 4 Abstract ... 5 Sumário ... 6 1. Introduction ... 7 2. Literature review ... 13 3. Methodology ... 16 3.1 Study object ... 16 3.2 Study method ... 16 3.3 Study subject ... 17
4. Case 1. SAIC Takeover Ssangyong ... 20
4.1 Case description ... 20
4.2 case discussion ... 20
4.2.1 Preparing stage - Culture assessment ... 22
4.2.2 Crashing stage - initial contacts ... 30
4.2.3 Collision stage - conflicts ... 33
4.2.4 Creating stage - the gradual integration ... 36
5. Case 2. TCL takeover Thomson’s European colors TV business ... 38
5.1 case description ... 38
5.2 case discussion ... 40
5.2.1 Motive analysis of acquiring Thomson ... 40
5.2.2 The corporate governance structure analyses. ... 42
6. Suggestion ... 47
6.1 For the Cultural integration ... 47
6.1.1. Making a good cultural assessment ... 47
6.1.2. Constituting a integrating plan ... 49
6.1.3. Implementing the integrating plan as soon as possible ... 51
6.1.4. Keeping a continuous and open communication with the labor union and staff ... 52
6.1.5. Keeping paying attention to the cultural integration ... 55
6.1.6. Monitoring the high level management's behavior ... 57
6.1.7. Establishing full-time integrating managers. ... 58
6.2 For the corporate governance structure ... 59
6.2.1. Reduce the ratio of the state-owned shares ... 59
6.2.2. Reform the appointment of company’s executives ... 60
6.2.3. Bring in an external Director. ... 61
6.2.4. Combining the strict supervision and effective excitation ... 61
7. Conclusion... 63
Annexes ... 64
4 Index of Charts
1. Chart1-1 1992-2005 the increasing of Cross-border M&A in Chinese enterprises ... 8
2. Chart 1-2 1990-2005 percentage of the amount of cross-border M&A accounted for FDI ... 8
3. Chart 1-3 1990-2004 the amount of cross-border M&A of Chinese enterprises and other countries ( million dollars) ... 9
4. Chart 1-4 1990-2004 percentage of the amount of cross-border M&A accounted for world 10 5. Chart 4-1 The step of cultural integrating process ... 21
6. Chart4-2 Cultural collision curve ... 22
7. Chart 4-3 The relationship between cultural difference and M&A ... 23
8. Chart 5-1 Corporate governance structure of Thomson ... 42
9. Chart 5-2 TCL’s corporate governance structure ... 44
5
Abstract
Since the 90's of the 20th century, driven by external factors such as the global industrial upgrading, restructuring and the tides of integration, the size and number of global M&A has been a rising trend, the volume of transactions reaching new heights. During this period, Chinese enterprises have become one part of the world economic market. Furthermore, under the influence of the last financial storm, lots of international companies skin into the financial crisis. This is a good opportunity for Chinese enterprises to executive Cross-border M&A to expand their international position and their competitive strength.
However Chinese enterprises just are the beginners on the Cross-border M&A, they have limit experience on Cross-border M&A. Cultural integration and corporate governance structure are the weakness of Chinese enterprises. It leads to the low success rate of Cross-border M&A of Chinese enterprises. This dissertation will study two cases in order to help the Chinese enterprises find out how to do cultural integrating work and adjust the corporate governance structure after Cross-border M&A.
Key Words and JEL classification: F23, Chinese enterprises, G34, Cross-border M&A, Cultural integration, corporate governance structure
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Sumário
Os anos 90 do século passado, factores diversos que se prendem com a globalização como sejam o desenvolvimento industrial, as reestruturações e integrações empresarias levaram a que o número de fusões e aquisições (mergers and aquisições – M&A) globais atingisse novos altos nunca dantes vistos.
Foi também durante este período que as organizações chinesas iniciaram a sua senda como actor de economia global. Todavia com o surgimento da recente crise financeira, muitas empresas de grande porte passaram a estar financeiramente muito fragilizadas. E, esta situação de instabilidade corrente é uma grande oportunidade para as organizações chinesas avançarem para M&A para além das suas fronteiras, tendo como fito principal fortalecer a sua competitividade no mercado internacional.
Pode dizer-se que até o presente momento, as empresas chinesas são pouco experientes no que se trata de M&A internacionais.
As principais fraquezas das organizações chinesas são a integração cultural e a governabilidade empresarial. Estes são, efectivamente, os principais factores que têm levado ao insucesso esses empreendimentos transnacionais.
A presente dissertação tem como principal objectivo reflectir para ajudar as empresas chinesas a obter sucesso nos projectos de M&A transnacionais através da análise de dois casos e, estabelecer os passos que as empresas devem tomar tanto na vertente da integração cultural como na de corporate governance para uma efectiva fusão ou aquisição internacional.
Palavras-chave e JEL Classification: F23, Chinese enterprises, G34, Cross-border M&A, Cultural integration, corporate governance structure
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1. Introduction
Since the 90's of the 20th century, driven by external factors such as the global industrial upgrading, restructuring and the tides of integration, the size and number of global M&A has been in a rising trend, the volume of transactions reaching new heights. The World Investment Report of UNCTAD shows that in 2005 the world's foreign direct investment reached 916 billion U.S. dollars, of which the total amount of global cross-border M&A accounted for 761 billion U.S. dollars. That means 80% of total FDI were achieved through M&A. China has become the world's largest destination of foreign direct investment after UK and USA. FDI inflow increased to 72.4 billion U.S. dollars. In the strong absorption of foreign capital, the growing Chinese enterprise started to increase foreign investment. At the end of June 2006, Chinese accumulated direct investment reached 63.64 billion U.S. dollars. Cross-border M&A has become an important way in Chinese foreign direct investment.
The following data shows that Chinese enterprises have a rapid development on cross-border M&A. First of all, the cross-border M&A behavior of Chinese enterprises has significant growth both in frequency and amount (Chart1-1). During 1988-1997, Chinese enterprises only had a limited number of cross-border M&A, the annual amount of M & A is less than 600 million U.S. dollars. After 1997, the amount of cross-border M&A had rapid growth. The amount of M&A in 1998 is more than 1.1 billion U.S. dollars. In 2003 it is higher than the 5.2 billion U.S. dollars. In 2005, the amount reached to 9.5 billion U.S. dollars.
8
Chart1-1 1992-2005 the increasing of Cross-border M&A in Chinese enterprises1
Secondly, the percentage of the amount of cross-border M&A accounted for FDI had a large change (Chart 1-2). Before year 2000, the percentage of the amount of cross-border M&A accounted for FDI was no more than 20%, while in 2000 the percentage was as high as 50%. And in 2004 it was more than 60%, but fell back to 33% in 2005. Therefore, the cross-border M&A could not be said had an advantage in China's overall FDI, can only say that the growth was coming.
Chart 1-2 1990-2005 percentage of the amount of cross-border M&A accounted for FDI2
year
Amount of C-B M&A (hundred million dollars)
FDI (hundred million dollars) C-B M&A / FDI % 1990 0.6 8 7.5 1995 2.5 20 12.5 2000 4.7 9.2 51.3 2001 4.5 68.9 6.5 2002 10.5 25.2 41.7 1
UNCTAD.ORG, Key Data from WIR Annex Tables
http://www.unctad.org/Templates/Page.asp?intItemID=3277&lang=1
2 UNCTAD.ORG, Key Data from WIR Annex Tables
9
2003 16.5 -1.52 /
2004 11.5 18.1 62.6
2005 23 69.2 33.2
In horizontal way, the scale of cross-border M&A of Chinese enterprises is still insignificant comparing to some European and American countries (Chart 1-3 and Chart 1-4), but in 2001-2004, the amount of cross-border M&As of the Chinese enterprises was more than South Korea's. According to an incomplete statistics , in 2005, the amount of cross-border M&A of Chinese enterprises was just after Japan and South Korea in Asia, which means that the cross-border M&As of Chinese enterprises not only has a very high speed development, but also a big scale.
Chart 1-3 1990-2004 the amount of cross-border M&A of Chinese enterprises and other countries (million dollars)3
Country / region World Developed economies Developing economies United States Japan European Union China Korea 1990 200 389 175 360 9 975 33 292 16 294 99 195 1 340 46 1995 231 577 207 788 18 176 58 671 3 729 109 904 759 2 091 2000 1 349 777 1 209 787 120 746 168 965 20 264 874 258 3 787 1 442 2001 730 441 664 422 52 976 161 499 21 990 360 172 2 023 645 2002 483 238 423 909 42 195 115 708 10 492 249 534 16 332 217 2003 411 302 344 581 36 550 120 176 8 050 159 393 5 256 567 2004 565 871 471 033 45 894 156 593 8 992 221 273 2 725 206 2005 929 362 777 609 99 455 171 534 13 220 486 504 9 546 1 702
3 UNCTAD.ORG, Key Data from WIR Annex Tables
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Chart 1-4 1990-2004 percentage of the amount of cross-border M&A accounted for world (%)4
Statistics show that in the tenth Five-year plan period, China's enterprises which engaged in transnational business were more than 30,000. World Investment Report 2006 showed that Chinese multinational corporations took half in the world's 100 largest transnational corporations in developing countries.5 From 2000 to 2004, the total amount of external acquisition raised from 1.8 billion U.S. dollars to 4.8 billion U.S. dollars. Even excluding China National Offshore Oil has withdrawn 18.5 billion U.S. dollars of the amount of the bid in 2005; the annualized transaction volume had reached 6.2 billion U.S. dollars. Studies show that high saving rate and the appreciation of the RMB will make the Chinese enterprises to maintain the Cross-border M&A. In the next decade Chinese enterprises will appear in the massive wave of Cross-border M&A.6
In the world economic market, Chinese enterprises are no longer the spectators; they have already been one part of the world economic market. However, on the Chinese management trend conference, Zhu Wei, the Chinese president of Roland Berger Strategy consultants- the biggest strategy consulting firm, said that "the M&A
4 UNCTAD.ORG, Key Data from WIR Annex Tables
http://www.unctad.org/Templates/Page.asp?intItemID=3277&lang=1
5 World Investment Report 2006
11
of Chinese enterprises are in the exploratory stage, most of the Chinese enterprises are lack of experience of M&A",7 M&A agreement is just the beginning. For Chinese enterprises, the way how to integrate the business and the resource after cross-border M&A is the key to a successfully M&A8.
However the integration after merger is the weakness of the majority of Chinese enterprises. Those Chinese enterprises Cross-border M&A cases which have shocked the world should have basically completed the integrating task and achieved anticipated synergies and the financial returns. But so far their performance is not optimistic or even close the business altogether. Therefore, in order to enhance the integrating ability of Chinese enterprises, the success rate of integration and to achieve synergies of Cross-border M&A and financial returns, Chinese enterprises should learn and summing up experience from the case of the failure of the integration. Only in this way can provide the international status of Chinese enterprises and achieve the internationalization of Chinese enterprises.
Based on the integrating research after the Cross-border M&A from the predecessors, this dissertation will do an reflection based on the SAIC takeover Ssangyong case and the TCL takeover Thomson's European TV business case. Hopefully it can help the high level managers and the integrating managers to pay attention to the integrating work. Furthermore, from these two cases we can sum up some experiences which can be learnt by the Chinese enterprises and can play a guiding role for the Chinese enterprises in the Cross-border M&A area. This dissertation has a broad meaning for the enterprise management and the integrating managers.
Firstly it can make the main managers of the enterprises to understand the importance of the cultural integration and the corporate governance structural adjustment. Secondly, this study can provide some ideas for the integrating managers. Finally is to improve the success rate of Cross-border M&A and to ensure the
7
Pan Qingshan (2005), Chinese enterprises have to stride over four obstacles, CNAUTONEWS, 5.
8 Wang Xiaobo (2007), The integrating ability after Merger is the weakness of Chinese enterprises,
12
efficiency of social resources can be maximized.
This dissertation has seven parts. The first part introduces the studying background of this dissertation and the object of writing this dissertation which is to study the cultural impact and the governance impact in the Cross-Border M&A and finally to increase the success rate of Cross-border M&A. The second part introduces the existent research result on the cultural integration and corporate governance structure. The third part gives the answer that why we have to study the SAIC and TCL case and the methodology to analyze the cases. In the fourth and the fifth parts, we have the description of these two cases by recurring secondary data. The sixth part proposes some recommendations which can help the Chinese enterprises to better execute the cultural integration and to improve Chinese corporate governance structures. The last part concludes this dissertation’s research result and point out the limitation of this dissertation.
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2. Literature review
Cross-border M&A is the extensive growth path to achieve rapid expansion for the enterprises. With the upgrading of Chinese industrial structure adjustment and increasing economic globalization, the M&A activities of Chinese multinational enterprises became increasingly active. However, whether in international or domestic, the overall results of M&A are not optimistic. The failure of a large number of cases led to many academic and business studies. Although the reasons for the failure are not all the same, but what is certain is that the cultural conflict after the M&A and the difference between corporate governance structures are the most important issues.
Hofstede (1984) considered that culture “is the collective programming of the mind which distinguishes the members of one group or category of people from another.9 Jemison, Sitkin (1986) and Buono et al. (1985) considered that “a big cultural difference probably may lead to "cultural ambiguity" and processing loss.” “A long cultural distance usually link to integrating conflict” (Jemsion and Sitkin, 1986). Empirical result shows that a M&A activity with obvious cultural difference will lead to a negative attitude of the investors. “Buono, Bowditch and Lewis believe that the difference of the management style is probably the main reason of the failure of the M&A.” It will lead to the low commitment and the noncooperation of target company's staff. “Hambrick and Cannella (1993) believe that the difference of management style also will lead to high demission of target company's high level managers”.10 Chatterjee (1992), Nahavandi and Malekzadel (1988) brought the cultural factor to the M&A research and built up a theory that a success mergers require cultural compatitablility.11 The research discovered that the accordance of
9 Hofstede.G (1984), Culture and Organizations of the Interculture Cooperation and its Importance
for Survival, London: McGrwa-Hill.
10 Chatterjee,S., M.H.Lubatkin, D.M.Schweiger, and Yweber (1992), Cultural differences and
shareholder value in related mergers: linking Equity and human capital, Strategic Management Journel.
11 Nahavandi,A. and A.R. Malekzadeh (1988), Social capital, intelectual capital and the organizational
14
two different cultures is indispensable for a success merger.12 After them, Cartwright and Cooper (1992, 1993) proposed the principle of cultural compatitablility based on the cultural classification of Harrision(1975). Weber (1996) inspected the influence of the cultural distance in high level management. Philip Very (1997) inspected some advanced managers from English and French companies which have been mergered by other companies. He pointed out that the target companies' performance after being mergered has a direct link to the cultural attraction of the mergering company. Olie (1990) has the same discovery. He considers that “the success integration of Cross-border M&A depends on the level of cultural influence, the level of integration and how much do they cherish their culture.” Olie (1994) also inspected the company factors in Cross-border M&A. He discovered that the difference of management style, difference of organization structure and culture, the level of coordination after M&A and the relationship of the two companies have shown the difficulty of integration after Cross-border M&A.
Scholars in different areas have different definitions of corporate governance.
“James McRitchie (1999) considers that corporate governance is most often viewed as both the structure and the relationships which determine corporate direction and performance. The board of directors is typically central to corporate governance. Its relationship to the other primary participants, typically shareholders and management, is critical. Additional participants include employees, customers, suppliers, and creditors. The corporate governance framework also depends on the legal, regulatory, institutional and ethical environment of the community. Monks and Minow (1996) consider “that corporate governance is the relationship among various participants, chief executive officer, management, shareholders, employees, in determining the direction and performance of corporations.” There is a considerable variation in corporate governance structures around the world such as Korean model, Japanese model, Germany model and the Anglo-English model. “Therefore, the selection of corporate governance structure after Cross-border M&A becomes very complicated.
12 Weher,Y., O.Shenkar, and A.Ravel. (1996), National and Corporate Cultural Fit in Mergers &
15
Because there are two sources of such difficulties: First, the different national or corporate cultures, and second, the different laws or constitutional conditions” (Reinhart Schmidt 1999). The OECD reflects this view in the preamble to its “Principles of Corporate Governance”, where it states: “There is no single model of good corporate governance.”13 Monks and Minow (1996) said that “it is a mistake to
attempt to impose one country's corporate governance system on another's”. And Sheridan/Kendall (1992) considered that “different countries have different ideas as to what constitutes good corporate governance.”
Currently Chinese academic circles mainly research the relationship between Cross-border M&A and corporate governance structure. Qu Tao and Li Shan-min (2004) consider “that absorbing Cross-border M&A will be favorable to the improvement of FDI quality and corporate governance”.14
According to the research, we consider that the cultural integration after the M&A and the corporate governance structure are the most important elements that will affect the success of the Cross-border M&A. But the fact is that the Chinese enterprisers pay little attention to the cultural integration and the corporate governance structure. In order to increase the success rate of the Cross-border M&A, the Chinese enterprises and the managers shall learn the importance of the cultural integration and the corporate governance structure and pay attention to them.
13
“OECD Principles of Corporate Governance”, Preamble, p2. (The Principles can be downloaded from: www.oecd.org/daf/governance/principles.html)
14 Qu Tao, Li Shan-min (2004), Corporate governance structure and Cross-border M&A, Journal of
16
3. Methodology
3.1 Study object
Nowadays, more and more Chinese enterprises use Cross-border M&A to enlarge their business in the global market. From last part we know that the business culture and the corporate governance structure will affect the success of the M&A. In order to help people understand the importance of the cultural integration and the corporate governance structure I will analyze two cases in this dissertation. These two cases are SAIC takeover Ssangyong and TCL takeover Thomson’s European TV business.
Choosing SAIC takeover Ssangyong as our study object is because this case is the first takeover case in Chinese automotives industry. It got lots of attention from both home and abroad. Furthermore, we can find that the cultural collision was very evident in the integrating process. The cultural collision brought many problems to both companies. After many years integration, the acquisition ultimately failed. But through this case we still can learn how to executive cultural integration after the M&A.
In the TCL case, we can find the importance of the corporate governance structure. A cross-border M&A may lead to the integration of two different corporate governance systems. But through the case we found that Chinese corporate governance structure is imperfect. The imperfect corporate governance structure effects the structural integration after the mergers. After studying this case, hopefully the Chinese enterprises will know how to design the corporate governance structure for the new company.
3.2 Study method
In order to make the case more objective and comprehensive, I will use the secondary data to describe the cases. In this way, this dissertation is a new case analysis based on the secondary data.
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In the SAIC case, the analysis will follow the step of cultural integrating process of Pan Ailing (2004). This model will separate the whole cultural integrating process into 4 stages which are the preparing stage, crashing stage, integrating stage and creating stage. I will analyze what have SAIC done in each stage and to find out what have SAIC done wrong and what can be a good example for other Chinese enterprise. For example, at the preparing stage, I will use Hofstede's five-factor model to analyze the Korean culture and Chinese culture. In addition, I will use the Culture Bridging Fundamental (CBF) model as the tool to analyze the business culture of SAIC and Ssangyong. CBF model is designed by Charles Gancel and Irene Rodgers (2004). It gives the manager an analysis of the business culture and helps the managers to solve the cultural integrating problems.
For the TCL case, The starting point is to compare the corporate governance structures of TCL and the corporate governance structure of Thomson. With the comparison we can find the difference of these two kinds of governance structures and the defects of the Chinese corporate governance structure.
3.3 Study subject
In order to study these cases better, we also need to know the background of these companies. Here is a brief introduction of these companies.
Shanghai Automotives Industry Corporation
Shanghai Automotive Industry Corporation (Group) (“SAIC” for short) is one of the top 3 automotive corporations in China. SAIC and it is mainly engaged in manufacturing, sales, research and development, investment in passenger cars, commercial vehicles and components, as well as related services trade and financial business. Besides, SAIC holds 83.83% of the equity of SAIC Motor Co., Ltd. In 2007, SAIC once again topped the Chinese automotive groups for a sales volume of over 1.69 million units of vehicles, of which 1,137,000 are passenger cars and 553,000 commercial vehicles. In 2008, the company also entered the Fortune Global 500 list
18
for its consolidated revenue of $22.6 billion (2007), ranking 373.15 Korean Ssangyong motor Group
The Korean Ssangyong Business Group was founded in 1939 and is now a large conglomerate with interests in cement, oil, paper and financial, information and leisure services. In 1986, Ssangyong bought the Ha Dong Hwan Motor Company, which had been making four wheel drives and trucks since 1954. In 1991, Ssangyong formed an alliance with Mercedes Benz, licensing light commercial diesel and petrol engines and other components. The Ssangyong Musso has been in production since 1993 and the smaller model of Korando since 1997. In 2002, new models have set to production like Rexton and Musso Sports Utility began being produced since late 2003. In January 1998, Korean carmaker, the Daewoo Motor, took a controlling interest in Ssangyong, but during the Asian financial crisis of 1999, the control of Ssangyong passed to Korean banks, with Mercedes Benz taking a minor shareholding.16
TCL Group
Established in 1981, TCL Corporation is a global leader and technology innovator in consumer electronics, mobile communications and home appliances. TCL employs more than 50,000 people in over 80 operations, including 18 R&D centers, 20 manufacturing bases, and more than 40 sales offices around the world. With 2008 global sales of USD 5.63 billion (including 14.36million TV sets and 13.7 million mobile handsets), and serving more than 100 million consumers worldwide, TCL Corporation is comprised of four business divisions -- Multimedia, Communications, Home Appliances and Techno Electronics. It also has two affiliated business areas: Real Estate & Investment and Logistics & Services. TCL is one of the world's leading producers of flat panel TVs, DVD players, air conditioners, and GSM, CDMA mobile phones. In 2004, TCL merged with some of the world’s most admired and recognized brands and businesses, including the Thomson television business and
15 SAIC Group, Introduction of SAIC http://www.saicgroup.com/English/sqjt/gsjs/index.shtml 16 Ssangyong Moto, Ssangyong the company http://www.ssangyong.co.za/news.asp
19
Alcatel mobile phones.17 Thomson Group
Thomson is the world leading provider of solutions for the creation, management, delivery and access of content for the communication, media and entertainment industries. Under the Technicolor brand, the Group offers its content creator and distributor customer base services related to the creation, preparation and distribution of premium video and film contents. Through its Thomson Connect activities, the Group supplies satellite, cable and telecom operators with access and home networking devices and software platforms. Thomson conducts extensive research and development activities to innovate and to support its solutions to the Communication, Media & Entertainment industries. The Group also licenses its intellectual property.18
17
TCL Group, Company profile about TCL
http://www.tcl.com/main_en/About%20TCL/Company%20Profile/index.shtml?catalogId=13046 18 Thomson, About Thomson
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4. Case 1: SAIC Takeover Ssangyong
4.1 Case description
At the end of 2003, Ssangyong's creditors decided to sell their Ssangyong's stake by global tendering. Shanghai Automotive Industry Corporation (SAIC) participated in this bidding, and by the end of October, SAIC hired third-party agencies such as Deutsche Bank and Swiss Bank to do the first phase responsible investigation, to study Korean law, regulations, customs and culture. July 27, 2004, SAIC had been identified as preferred bidder by Ssangyong creditors, and both of them signed a binding memorandum. SAIC began to start a 3 weeks comprehensive responsible investigation. After the final investigation, SAIC and Ssangyong entered the final negotiation.19
When negotiating with the Ssangyong's creditors, SAIC had a very tense negotiation with Ssangyong's labor union. July 22, 2004, Ssangyong's labor union held a strike and asked for a special agreement from SAIC. The special agreement included the establishment of overseas manage strategy committee, allow the labor union to participate the decision-making process, the protection of employment and the equipment will not be transferred. October 28, 2004, the special agreement was accomplished. At the same day, SAIC and Ssangyong Motor Company signed the M&A contract in Seoul, SAIC spent 500 million U.S. dollar to acquire a controlling 48.9 percent stake of Ssangyong Motor. South Korean Ssangyong Motor Co., Ltd. became a holding subsidiary of SAIC. Since then, SAIC purchased Ssangyong's shares through the stock market more than 10 times to have 51.33% Ssangyong's shares which achieve the absolute control of Ssangyong.20
4.2 Case discussion
The analysis will follow the step of cultural integrating process. According to
19
Liao Yunfeng (2007), Chinese enterprises Cross-Border M&A case analyze, Enterprise Management Publishing House, P55.
20
Liao Yunfeng (2007), Chinese enterprises Cross-Border M&A case analyze, Enterprise Management Publishing House, P56.
21
Pan Ailing (2004), the cultural integration of cross-border M&A can be divided into 4 stages which are preparing stage, crashing stage, integrating stage and creating stage. Each stage has different characteristics and focusing. In the preparing stage, the merger company has to do the cultural assessment and find the cultural difference between two companies. And in the crashing stage, the merger company has to study the cultural difference. In the integrating stage, the merger company has to remove the cultural difference. In the creating stage, the merger company will finally build up a new business culture. Now I will analysis this case accordance with the following chart. (Chart 4-1)
Chart 4-1 The step of cultural integrating process21
The integrating process is similar, but in the different cases, the possibility and the size of the cultural collision will be different. The following figure shows the main form of the possible three curves. SAIC used a secure integrating strategy. It means that SAIC will not do a drastic restructuring and personnel changes at once after the M&A. SAIC made a significant restructuring and personnel changes one year after the M&A. So the cultural collision occurs mainly in the integrating stage, just like Chart 4-2.
21 Pan Ailing (2004), Process Designing and Pattern Choice of Cultural Integration during
Cross-border Merger and Acquisition, Naikai Business Review, 6.
Step
Characteristic
What to do
Preparing Crashing Integrating Creating
Senses of difference Appearance and enlargement of difference Remove of difference and reach agreements Attract each other Cultural assessment Cross culture studying Movement of business culture Rebuild the business culture
22
Chart4-2 Cultural collision curve22
4.2.1 Preparing stage - Culture assessment
In the preparing stage of cultural integration, the main work is to make a comprehensive study and evaluation of cultural background of the enterprises, to analysis the cultural differences and the possibility of collision, and make a preliminary integrating program according to the study and the analysis. “Cultural assessment should be focused on the cultural strengths, weakness and type of the both of the companies. And cultural assessment should have the analysis of the both companies' business culture, the evaluation of the size of cultural difference, analysis of the cultural integrating points and opportunities.”(Pan Ailing, 2004) cultural assessment is the precondition to make a cultural integrating project, to select the integrated model and have an effective integration.
Because both of the cross-border M&A companies are from different countries, normally they will face the difference of the business culture and difference of national culture. As a result of differences in national culture, the members of the cross-border M&A companies have different values, beliefs and traditions, which determine their different behavior. Business culture is a "micro" culture which is born and running under the national culture. General speaking, the bigger differences in national culture, the bigger difference in business culture, It means that each national
22 Pan Ailing (2004), Process Designing and Pattern Choice of Cultural Integration during
23
culture has a strong relate with a range of business management, showing a special business culture which is decided by the national culture.
Chart 4-3 The relationship between cultural difference and M&A23
Chart 4-3 compares the cultural differences and collision of the domestic M&A and cross-border M&A. Domestic M&A majorly face the difference and collision of the business culture. The cross-border M&A face the difference and collision both of the business culture and national culture. Therefore, the cultural assessment of a cross-border M&A must contain the national cultural evaluation of two countries and the business cultural evaluation.
(I). Similarities and differences between China and South Korea's national culture
With Hofstede's five-factor model of cultural analysis (Annex I) we found that the national culture of China and South Korea has great similarity. But they still have some differences on power distance; the South Korea's score is higher than China, which means that in South Korea, there is great distance between the boss and the employees. On the uncertainty avoidance factor, China and South Korea are the high uncertainty avoiding society, but South Korea scored higher, most of Korean lack a sense of security, they have a strong contradiction on the uncertain and ambiguous
23
Deng Hong (2007), Intercultural Integration in M&A in Chinese Enterprises, Science & Technology Process
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things. Although China and South Korea are advocating collectivism, but nowadays the individualism is increasing in China while the Confucian culture in Korea has retained more complete. In the masculinity factor, South Korea is more like femininity. On the long-term orientation factor, the Chinese scored higher, it means that Chinese can give up their short-term gain in order to get a long-term gain. Compared with the Chinese, Korean people are short-term orientation. The long-term gain is full of risk, short-term gain is more reliable, so they do not believe that the long-term commitment. In addition to the five cultural differences, China and South Korea have some unique cultural characteristics of their own national culture:
(1) Chinese national culture
Chinese traditional culture has long history and is profound, is a multi-cultural composition. The doctrine of Confucianism and Taoism constitute Chinese traditional culture's main structure. The doctrine of Confucianism and Taoism contain numbers of philosophy and reason, they have tremendous impact on the mentality and character of the Chinese nation and imperceptible influence on people's life and ways of thinking. And its main features are the doctrine of the mean and the inclusive.24
The doctrine of the mean
Chinese traditional culture of Confucian creates Chinese people's values- doctrine of the mean. The most basic meaning of the doctrine of the mean is "listen to both sides and choose the middle course", "going too far is as bad as not going far enough". It means pay attention to harmony, and insist on moderation. The doctrine of the mean is one of the basic spirits of the Chinese nation and making the Chinese people very focused on the achievement of harmony and maintain. Do no extremes, strive to safeguard the collective interests, seek common ground while reserving differences, and have become the universal principles of thinking. The doctrine of the mean maintains follow in proper sequence, saying that "More haste, less speed".
Inclusive rather than lack of adaptability
24 Ma Juping, Chen Lizhen (2005), Unscramble the corporate culture of Korea, Chinese & Foreign
25
Chinese culture has a strong sense of inclusiveness, and tolerance to allow the existence of various cultures. At the same time Chinese culture absorb the essence of other culture and constantly adjust and perfect its own culture. This kind of culture and the pride of the Chinese nation have been made the poor adaptability of Chinese culture. In 2004, Roland Berger did a research on the 50 biggest Chinese enterprises; the result showed that the Chinese enterprises are the groups that do not attach importance to cultural differences, although 90% of them have been in operating in overseas projects.
(2) South Korean national culture
South Korea and China belong to East Asia, they have many cultural similarities. In South Korean history, Confucianism has been the mainstream of South Korea as philosophy, and impact South Korea profoundly. However, the Japanese colonial rule during 1910 to 1945, years of the assistance form United States after World War II, development of export-oriented economic and prosperity of foreign trade have made the Korean culture affected by Japan and the United States in different level. In addition, Korean own history, tradition and experience formed a unique Korean culture.
South Korea's national cultural characteristics are mainly embodied in two aspects: the new Confucian ethics, multi-cultural integration and transformation.25
The new Confucian ethics
The values of "virtue", "loyalty", "humility" are reinstated as part of the new Confucian ethics. However, due to the historical process and the special geopolitical background, Korean culture is mixed up with other foreign cultures such as Buddhism and Christianity and has transformed the core values of Confucianism. The new Confucian ethics, a political ethics with Korean characteristic, it stressed a sense of responsibility, patriotic loyalty, pay attention to family, stressed coordination and cooperation between members, pay attention to education and advocating talent. New
25Feng Jinling (2004), On South Korea's National Cultural Characteristics and its Modernization,
26
Confucian ethics has a profound impact on Korean socio-economic and family life. South Korean business culture is full of features of new Confucian ethics which reflected in a highly centralized organizational structure and senior leadership of the power management system as well as acts of authority. Korean has strong personality, but when they are organized into groups together with a sense of belonging to the organizations, then a strong type of organizational culture is enacted. In the performance evaluation and reward system, seniority continues to dominate the Korean business.
Multi-cultural integration and transformation
In the mid-20th century to 1980s, the number of Catholics and Protestants in South Korea has had a big increase. The fighting spirit of Christianity, the assertiveness of Protestants and the authority of Confucianism and Buddhism are integrated together and therefore, provided a reliable belief for South Korea's national spirit. This new spirit increased the concept of equality and independence, and provided a fresh air to the Korean traditional culture.
This kind of multi-cultural ambience pushes the Korean enterprises to “corporatism”. South Korean companies now have a common tendency which is stressing a “harmony” community-style business culture and a trust between employers and employees. Enterprises in South Korea stressed the harmony, especially in the different administrative levels; the leaders attach great attention to interpersonal relationships with their subordinates, and fully understand the needs and feelings of his subordinates. Before making major policy decisions, leader must ask for opinion from his subordinates. Especially in the development of decision-making, leader will do his best to determine and understand the views and feelings of his subordinates. However, many Korean employees are not good at expressing their opinion at a formal meeting, especially an opposition. Expressing a different opinion in public may embarrass the leaders or colleagues even breed emotional resistance. The essence of Korean culture does not encourage expressing personal views in public, unless the parties have a close personal relationship. However, Korean like to
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express their views in an informal setting, sometimes is a negotiation with boss in an informal setting. In South Korea, the informal contacts between managers and subordinates are more frequently, contact in an informal setting is considered a very important way to build a superior-subordinate relationship.
(II) Differences and similarities in the business culture
Culture itself is very abstract, unconscious and not obvious. And business culture, as compared with the national culture is more complex, more volatile. To integrate the two different business cultures, first of all, it is has to embody and simplify the corporate culture. Here I use Culture Bridging Fundamental (CBF) model as an analytical tool to analyze the business culture of SAIC and Ssangyong.
The CBF model is a specialized model designed byCharles Gancel and Irene Rodgers who are the managing partners of Inter Cultural Management Associates. The CBF model provides the manager an analysis of the business cultural integrating problem and helps the manager to solve the problem. If the enterprises want to integrate the business culture between two sides of the M&A, it must answer the following three questions.
Forward-looking: How to communicate and exchange the company's goal in the organization and being generally agreed by the staff? 26
In the forward-looking, the business culture have three orientation: some culture tend to focus on the organizational structure, they believe that if the organizational structure of enterprises is reasonable and everybody assume all their responsibilities, then the companies can be able to cope with the challenges from the market. Some culture tend to focus on the communication of the strategic objectives, they firmly believe that when employees know the direction of enterprise development - its strategy and objectives - especially when they know what should be done, the employees can feel a sense of security. Some culture stressed on the business tradition: they believe that whether the employees can find strong corporate values and
26 Xiong Yongqing, Hu Ming (2005), Cultural risk on M&A and its measure model, Science &
28
traditions and use these strong corporate values and traditions to the development of the company, is the key point that the staff is able to really integrate into the enterprise or not.
Both SAIC and Ssangyong's business cultures are inclined to the communication of the strategic objectives they firmly believe that when employees know the direction of enterprise development - its strategy and objectives, the employees will feel a sense of security.27 But they have a huge difference on the understanding of the strategic objectives. The strategic positioning from SAIC to Ssangyong Motor is the oversea technology platform, that is to say SAIC wants to use of Ssangyong's technology.28
It is clear that the Ssangyong is very worried about the strategic positioning.29 In South Korean people's opinion, Chinese means cheap labor and backward technology, and they not only worry that the high technology will flow to China, but also worry that SAIC will move the factories to China, resulting in lost of their jobs. No matter what kind of culture, in the forward-looking challenges, communication is the most basic and most important point.30 SAIC needs to make a continuous communication with Ssangyong's stakeholders in order to timely and clearly transmit the strategic positioning, the meaning and the benefits to the stakeholders. Make sure the Ssangyong's employees agree with this strategy positioning.
Legitimacy: how will the staff regard credibility and authority of the managers and leaders in the organization?31
Different teams and organizations have different opinions on the legitimacy. In other words, it means that people have different preferences on what is their "reputation" and "authority". The standards that the employees choose to trust and the
27 Liao Yunfeng (2006), Domestic enterprises' overseas M&A, China Financial and Economic
Publishing House, p247
28 Liao Yunfeng (2006), Domestic enterprises' overseas M&A, China Financial and Economic
Publishing House, p247
29 Liu Tao (2006), Enlightenment of SAIC on Korea, China Entrepreneur, 12.
30 Xiong Yongqing, Hu Ming (2005), Cultural risk on M&A and its measure model, Science &
Technology Process and Policy, 12.
31 Xiong Yongqing, Hu Ming (2005), Cultural risk on M&A and its measure model, Science &
29
determination to follow a leader are held differently from different cultures. In legitimacy, there are three distinct cultural preferences: The first one is the preference of an the intelligent leader which is well-educated, skilled with theoretical knowledge, academic qualifications and a variety of titles. The second preference is for a leader with goof performance on the job and with lots of working experience. The third cultural preference lies in the "insiders" which have similar work experience and social background as the coworkers.
In the credibility and authority issue, Ssangyong belongs to the "insiders" type and "working performance" type. First of all, as a typical South Korean company, Ssangyong strongly emphasize the seniority. Ssangyong’s staff pays lot of attention on leader's experience, background and social skills.32 Most of the Korean managers have been working in Ssangyong for 20 to 30 years and most of them would have by almost all the internal departments like production, marketing and planning. This is also why managers could exert great influence on all strategic matters in Ssangyong'.
On the other side, according to article «Ssangyong event» from Xu Jiawang (2009), we can find that SAIC culture prefers a good working performance leader. All the managers that SAIC dispatches to Ssangyong are capable, such as director Jiang Zhiwei, the vice president of SAIC; vice president Zhang Haitao, general manager of one of SAIC subsidiary; Zhu Xian who is in charge of finance and Shen Jianping who is in charge of procurement. Unfortunately, all of these people lack of international management experience. That is because SAIC did not have enough managers who are good at cross-border management. And this is the same problem that most of Chinese enterprises will face which want to going out.
Validity: which method should be used to resolve the contradiction, as well as how to deal with company's affairs?33
Different business culture has different preferences on the working method.
32 Ma Juping, Chen Lizhe (2005), Unscramble the corporate culture of Korea, Chinese & Foreign
Corporate Culture,6.
33 Xiong Yongqing, Hu Ming (2005), Cultural risk on M&A and its measure model, Science &
30
Some business culture prefers a programming operation; Some business prefers to act immediately; Some business culture prefers to start their work via their own relationship network.34
In the validity, SAIC and Ssangyong have a big difference. From the article «Unscramble the corporate culture of Korea» from Ma Juping and Chen Lizhe (2005), we found that Ssangyong is act-oriented. Ssangyong prefers to use various methods to achieve the goal as quickly as possible and gain as more resource as possible. This is also a reflection of Korean culture.
But SAIC is difficult to summarize in validity. On one hand they are action-oriented, good at self-management and act according to circumstances. On the other, the influence of Chinese culture makes SAIC to be “long-term oriented”, pay attention to a smooth business operations and risk prevention.
After the analysis of national culture between South Korea and China and the business culture between SAIC and Ssangyong, let's define the cultural integration model that SAIC used. SAIC and Ssangyong are highly relevant at the strategic level. The strategic intention of this acquisition can be achieved only after the realization of the technology sharing from Ssangyong. The inclusiveness of Chinese culture makes SAIC to be inclusive with different cultures.
Concerning cultural integration, it could have two choices: blended cultural integration and separate cultural integration. Ssangyong has a very strong sense of identity with the national culture, and Ssangyong's business culture is a strong business culture. Therefore, SAIC could only choose the blended cultural integration
4.2.2 Crashing stage - initial contacts
The integration after merger needs to combine two different operation systems, which is the most difficult and most important stage in the M&A management process. The failure of the cultural integration will lead to the failure of the M&A behavior. After the acquisition of Ssangyong, SAIC did not have a drastic
34 Ma Juping, Chen Lizhen (2005), Unscramble the corporate culture of Korea, Chinese & Foreign
31
restructuring and personnel changes, but did some changes step by step. This activity is directly related to the Chinese culture. Chinese culture emphasize in front of an unfamiliar environment, step-by-step is the best way to minimize the risk. And we can learn and adjust as the case may change at any time.
In order to eliminate doubts from Ssangyong and win the trust, at the beginning of M&A, SAIC almost retained the whole management team of Ssangyong. But that is because SAIC didn't have enough international management talent and didn't have the ability to completely take over Ssangyong.35 But objectively speaking, at that time, the market condition and the operation of Ssangyong were not bad. It's not necessary for SAIC to take over the Ssangyong completely. On the other hand, retaining the original management team can reduce the misgivings and achieve a smooth transition.
In order to achieve the integration and eliminate the differences between Ssangyong and SAIC as soon as possible, SAIC hired a multinational management consulting firm to make a “hundred days integration plan”.
One of the first measures were that the representatives of SAIC and Ssangyong to announce in press conference the new values of Ssangyong which are “ the new one mine”, “new starting point” and “new challenges”.36
Ssangyong used the slogans such as "Let's start a new Ssangyong, you can do it" and "emphasize the principal and trust each other" to transfer these new values to the staff.
In the beginning of the M&A negotiation, SAIC's managers were very concern with how Ssangyong's employees understand the Chinese culture and SAIC's culture and to identity the future operating principle of SAIC.37 After signing the formal M&A contract, in order to further appease Ssangyong which is known by the strong labor unions, and let the Ssangyong's labor unions to understand SAIC better, SAIC
35 Liao Yunfeng (2007), Chinese enterprises Cross-Border M&A case analysis, Enterprise
Management Publishing House, P56.
36 Liao Yunfeng (2007), Chinese enterprises Cross-Border M&A case analysis, Enterprise
Management Publishing House, P60.
37 Liao Yunfeng (2007), Chinese enterprises Cross-Border M&A case analysis, Enterprise
32
invited the delegation of Ssangyong's labor unions to visit the SAIC, the Exhibition Hall of SAIC, production line of Shanghai Volkswagen and Shanghai General Motors factories.38 So that the Ssangyong's labor unions could understand the development process of SAIC, as well as the level of vehicle manufacturing assembly line. Later, SAIC organized a visit to SAIC for the new employees who have the university degree or above for one day, so to make the new staff understand Chinese economic and cultural as well as the SAIC's future business environment.
Cultural integration should be bilateral, while promoting the knowledge from Ssangyong' staff to SAIC, rherefore, Chinese managers were sent to Ssangyong for a cultural sensitivity training. From the Zhang Jinfang’s article, SAIC didn’t easily operate Ssangyong. The board of SAIC invited in-house staff of Ssangyong to train the Chinese managers and made them understand South Korea's customs, culture and traditions. After the acquisition the Ssangyong, SAIC gave everyone who works in South Korea a pamphlet, "Korean comic book". This book talks about the formation of Korean culture and the formation of the Korean strong sense of national pride. The highest manager Jiang Zhiwei had got a very friendly image in Ssagnyong. He played a key role in the process of the acquisition of Ssangyong because he has a wealth of management experience, familiar with the automobile production and sales, participated in the whole process of the SAIC-Ssangyong M&A project.
During the “Integration Days”, Ssangyong's management team and staff seemed to be coordinated. Ssangyong's high-level managers began to learn Chinese. More staff started to consider that, Ssangyong is now a Chinese enterprise, perhaps the future of themselves and their enterprises will be in China. In order to work well in China, you must learn Chinese. From January 2005, staffs in administrative and production sectors have also begun to learn Chinese.39
This good scene is reinforced due to the upgrading sales of Ssangyong: the first half of 2005, Ssangyong sales automobiles 60,908, of which exports 30,441, the total
38 Liao Yunfeng (2006), Domestic enterprises' overseas M&A, China Financial and Economic
Publishing House, P250.
39 Liao Yunfeng (2006), Domestic enterprises' overseas M&A, China Financial and Economic
33
amount is almost 2 times of the same period last year, and created a highest record of export sales performance. And SAIC exports 389 million U.S. dollars, most of them is created by SAIC Ssangyong, the export growth of SAIC is 28.4% higher than the same period of previous year, was the NO.1 in the national automotive industry exports.40
4.2.3 Collision stage - conflicts
After the initial victory in the integration, SAIC began to gradually increase the control of Ssangyong. It sent more managers to Ssangyong and implemented the integration plan. At this time, the conflicts have come out and turned to be more and more severe. The integration went into the collision stage. This stage is often accompanied by bigger changes, such as the new organizational structure, the movement of the managers, the reducing of the employees and the start of the larger projects.
In this stage, SAIC ahs made some big personnel changes. SAIC replaced the chairman of Ssangyong and deployed five high-level Chinese managers to Ssangyong. SAIC replaced Ssangyong's general managers and two deputy general managers. These personnel changes made SAIC get the real control of Ssangyong. But these personnel changes led to the dissatisfaction with Ssangyong.
However, not everything went like SAIC expected. After 2002, the domestic demand of Korean automobile market shrank and fell to the valley in 2006. At that time, the price of the energy in the international market rocketed, and almost all the fuel of South Korea was dependent on import, the diesel price was also climbing. Korean automobile consumption tax rate slanted to small cars in recent years.41 All of these things effected Ssangyong's sales. And because Ssangyong was debt-ridden in previous years, without a good credit to loan, Ssangyong had not enough money to develop new products. The new products were lack of new characteristics which made the sales of Ssangyong worse. For these reasons, the operational crisis of SAIC
40 Zu Jian (2007), Ssangyong's sales makes phenomenal progress, China Auto Market, 9. 41 Xu Jiawang (2009), Ssangyong event, Directors & Boards, 3.
34
came out. According to Xu (2009), SAIC made a plan which would dismiss some staff and cancel some beneficial welfare in order to get out of the bad situation. When SAIC brought up this plan, the staff of Ssangyong struck to wreak their discontentment. The 49 days general strike not only made SAIC lost 300 million U.S. dollars, but also made SAIC's plan to profit in 2006 vanish into air.42 However, on the issue of layoffs, SAIC became very tough. After the agreement with the labor union, SAIC still dismissed 544 employees, and completed the restructuring.
In our perspective, in the collision stage, it is very important to keep monitoring the “main obstacles”. These are the key factors which pay a major obstructed role on the cultural integration. “Main obstacle” would be an individual, an interest group or an original system of the enterprise. With the process of the cultural integration, “main obstacles” will be a very active factor. Therefore, the key point to monitor the "main obstacles" is to handle the speed of cultural integration and the strength of cultural collision. In this case, I would consider that SAIC should have focused on the following “main obstacles”:
Labor unions
Employees are the most important thing in a company. Their attitude toward M&A will directly affect the success or failure of M&A. In developed countries, labor unions, as the delegate of employees, can directly negotiate with the Board in order to secure the rights of employees. In order to integrate successfully, it must be accepted and supported by labor unions. Therefore, it is necessary to maintain a long-term monitoring on the labor unions so that managers can react timely when the labor unions have abnormal response. As it is obvious, the strong militant Ssangyong's labor union is the first main obstacle of SAIC.
Even before the SAIC taking over Ssangyong, Ssangyong's labor union had struck to oppose the M&A and that strike resulted a direct loss of more than 50 million U.S. dollars.43 It can be said that in the early stage of the acquisition, SAIC
42 Xu Jiawang (2009), Ssangyong event, Directors & Boards, 3.
35
should have paid more attention to this main obstacle. During the process of the acquisition, SAIC and Ssangyong's labor union had negotiated many times. Under the pressure of labor unions, SAIC signed a “special agreement”. With the signing of the agreement, on the one hand, it has lifted staff's main concern over the M&A, so that they can actively cooperate with the initial integration, but on the other hand, it does set a potential problem for future integration. Especially in adverse market conditions or bad business performance, once the company wants to dismiss the staff to relieve the bad situation, it will face a strong protest from employees and lose trustfulness.
When SAIC dismissed the original management of Ssangyong, the labor union lodged a strong protest. The dismissal let Ssangyong's labor union hold a big strike, which exposed the contradiction between SAIC and Ssangyong to the Chinese and Korean people. Although during the strike, the managers of SAIC Ssangyong negotiated with Ssangyong's staff many times and ultimately they could reach an agreement to terminate the strike, but the short-term exchanges didn't let SAIC win the trust of Ssangyong's employees. Even the strike came to an end, the labor unions of Ssangyong still doubt that in the future whether SAIC can fulfill the commitment.
The delegate of the owners – Ssangyong’s original director
The management team of the original company is another important interest group. Although they are far less than the number of employees, they are in the key positions in the company. Their attitude also comes from the original company as same as the employees, but they hold great difference from the staff. They are emotionally the same as the other employees holding deep feelings about the company. It is easily expected they will be more or less hostile to a strange new boss. On the other hand, in their day-to-day management, they deal with the employees as the delegate of employers, and strive to safeguard the interests of employers. The conflicting positions of the original management decides that their performance in the integration process will be more complex, requiring the merging side to pay a lot of attention.
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business strategy from both sides.
The conflict was raised because of the cultural differences. As we know, cultural differences are in many cases the utmost concern on decision making about strategy, human resources. Additionally, cultural differences also lead to operational differences. When strategic conflict comes out, we should not only look at the surface conflict of the object but be focused on the integration issues and conduct an in-depth analysis of the potential cultural factors in order to identify the root causes of problems for further cultural integration.
4.2.4 Creating stage - the gradual integration
Creating stage is a new period under the cultural integration. In this period, the two companies will create or integrate a new culture. Compared with the first three stages, the beginning point of creating stage is a quite ambiguous. Because the process of cultural collision possibly is a cultural pioneering and innovating process. And the end of this stage is obviously not expected, it will carry on with company's continuous development.
According to the Xu Jiawang (2009), although the 49 days strike once made Ssangyong's production line stop, and lead to an enormous lost. The strike made SAIC to find out Ssangyong's labor union's bottom line. SAIC quenched the strike with a promise that no dismissal. But that is not absolute. Before the end of the strike, SAIC had dismissed 544 employees, the condition is a replacement for the 19-20 months of wages. In China, Hu Maoyuan, the director of SAIC, said that SAIC will not stop the dismissal; they do not only dismiss the workers, but also the person who do not work, including the management.
The SAIC's firm position in the strike and the compromise of the Ssangyong's labor union explained that the Korean workers began to truly understand the meaning of win-win solution they claimed. The successful settlement of the strike also means that SAIC has basically completed its restructure and personnel changes. The cultural integration has entered into a new stage: the creating stage. Furthermore, SAIC had found a person to solve Ssangyong's personnel problem, Philip Murtaugh,CEO of
37
GM China. Philip Murtaugh, has been named as "expert of structural adjustment" by Korean medias, who has proposed a plan that reduce 986 workers before he took office in Korea. He has also publicly stated that “if Ssangyong's labor union's strike activities hurt the company's long-term interests, SAIC will never make concessions”.44
For the investment problem, Philip Murtaugh said that SAIC would not directly invest in Ssangyong, because the Korean company may get the necessary capital they need with floating bonds and borrowing from the banks. In Murtaugh's opinion, Ssangyong is an independent company even with the support from SAIC. This was the solution for the investment problem. It not only removed the concerns of Ssangyong's workers and greatly eased the contradictions, but also relieved SAIC’s funding pressures.45
After the solution on the labor union and the investment problems, the situation of SAIC Ssangyong financial situation got improvements. The Financial Report of SAIC Ssangyong Motor Co., Ltd. of Korea in 2006 showed that in 2006 SAIC Ssangyong got a net loss of 196 billion Korean Won. Notwithstanding, the market did not pay much attention, thoug Ssangyong still provided big draw for the investors. Even well-known investment bank, the Goldman Sachs raised its rating of SAIC Ssangyong. In the year of 2007 the company did improve yet. In the first half of 2007, Ssanyong automobiles sales reached 69,755 units, meaning an increase of 13.2% higher than the same period of 2006. The figures include South Korea's domestic sales that grew by 4.7 percent. In overseas markets, export volume grew 20%. After the 3 years decline in profits, Ssangyong got profits in the first half of 2007. In the Chinese market, Ssangyong got a good performance too.46
44 Liao Yunfeng (2007), Chinese enterprises Cross-Border M&A case analysis, Enterprise
Management Publishing House, P69.
45
Liao Yunfeng (2007), Chinese enterprises Cross-Border M&A case analysis, Enterprise Management Publishing House, P70.
